Longtime homeowners know that old windows, inefficient heating systems, poor insulation and other energy drains can take a significant — that is, expensive — toll on your annual utility costs.
Investing in upgrades and technologies that boost energy efficiency can save homeowners a healthy chunk of change in the long run. Like other lending options, VA borrowers can obtain an Energy Efficient Mortgage (EEM), which allows qualified buyers to add into their purchase or refinance loan the cost of acceptable energy improvements.
If you’re ready to purchase a home, learning more about the VA home loan process is a great place to start.
Energy Efficient Mortgages can be a solid investment for veterans and their families, especially those planning to stay in the home for a while. Spending money at the outset on energy improvements can ultimately lower heating, cooling and other related energy costs for years to come.
That monthly savings can be funneled into additional payments to the mortgage principal or dozens of other household necessities.
Range of Improvements
EEMs allow the lender to tack on $3,000 to the loan amount as long as the veteran can verify the cost of improvements through bids, contracts and other documents. For veterans who want to spend from $3,000 to $6,000 on improvements, the lender has to make sure the energy improvements generate enough savings to offset the new, higher monthly mortgage payment. In other words, it makes no sense to boost your monthly payment by $150 if the energy improvements only save you $15 in utility costs.
Veterans can’t use an EEM to install an energy-efficient swimming pool, appliances or make cosmetic upgrades to the property. But there are more than a dozen acceptable improvements, including:
- Thermal windows and doors
- Insulation for walls, ceilings, attics, floors and water heaters
- Solar heating and cooling systems
- Furnace modifications (but not an entirely new furnace)
- Heat pumps
- Vapor barriers
Improvements that cost more than $6,000 require special consideration by the lender and the VA. This is a relatively rare occurrence.
The veteran typically has six months after closing to get the improvements completed. Small fixes can be taken care of before closing. otherwise the lender may decide to open an escrow account for the improvement funding.
There’s standard language on a VA appraisal that explains to veterans their ability to secure an energy efficient mortgage. That same section also notes that the buyer may want to consider paying for a home energy audit, a key step that kick-starts the process.
Veterans can check with their local utility companies to see if there are free or reduced-cost energy audits available. Private firms may also offer discounts for military members, veterans and their families. As with any in-home service like this, make sure you hire a legitimate company with a proven track record.
Pursuing an EEM doesn’t make sense for every homebuyer. Depending on the property and your particular interest, talk with a Veterans United loan specialist about your energy efficiency options at 855-524-7279.
Photo courtesy of dobrych